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For the taxable years under consideration, section 446(b)
generally outlined the methods of accounting for Federal tax
purposes, but it did not specifically address whether taxpayers
could use CCM. Section 1.451-3, Income Tax Regs., however,
specifically permitted the reporting of income and expenses from
long-term contracts using CCM. Petitioner selected CCM and is
afforded some latitude in selecting a method of accounting.
Section 1.446-1(a)(2), Income Tax Regs., provides:
It is recognized that no uniform method of accounting
can be prescribed for all taxpayers. Each taxpayer
shall adopt such forms and systems as are, in his
judgment, best suited to his needs. * * *
Respondent does not question petitioner’s selection of CCM,
but determined that Contract 2034 should be severed into four
annualized reportable portions. Rules governing severance and
aggregation of long-term contracts were promulgated by the
Secretary and set forth in section 1.451-3(e)(1), Income Tax
Regs.10 That regulation generally provides:
10 These regulations were modified pursuant to the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-
248, 96 Stat. 324. Sec. 229 of that Act was titled “Modification
of Regulations on the Completed Contract Method of Accounting”,
and directed the Treasury to amend the regulations governing CCM
to clarify, among other things, the rules governing severance and
aggregation of long-term contracts:
SEC. 229(a). In General.--The Secretary of the
Treasury shall modify the income tax regulations
relating to accounting for long-term contracts to--
(1) clarify the time at which a contract is
to be considered completed,
(2) clarify when--
(A) one agreement will be treated as
(continued...)
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